The Net Profits Tax (NPT) is assessed on resident individuals as well as nonresident individuals and unincorporated entities doing business within the city of Philadelphia:
- Resident individuals, on business conducted within and without the city;
- Nonresident individuals, on business conducted within the city;
- Partnerships, associations, estates and trusts;
- LLCs that haven't elected to be treated as corporations for federal tax purposes.
An NPT return must be filed irrespective of whether not the business has an office or business location in the city. It also must be filed even if there was no profit. Failure to file can result in non-filing penalties.
Corporations and LLCs that have elected to be treated as corporations for federal tax purposes are not subject to the NPT.
Low-income residents and nonresidents are eligible for a half-percent reduction in the NPT based on the calculations on Schedule SP prepared with the Pennsylvania tax return. If the Pennsylvania tax return includes Schedule SP, you will need to know the Percentage of Tax Forgiveness as determined in Section IV Line 15. This percentage will be used to calculate the amount of taxable income eligible for the reduced NPT.
A individual or entity that moved into or out of Philadelphia during the year may have net profits as both a resident and a nonresident, thus both Worksheet A for residents and Worksheet B for nonresidents will have to be completed
To access the Philadelphia Net Profits Tax Return in TaxSlayer Pro, from the Individual Pennsylvania Tax Return Menu select:
- Miscellaneous Forms
- PA City Tax Return
- Philadelphia Net Profits Tax Return
Enter the business's tax account number in the City Account Number field. No information from the federal return nor the Pennsylvania return flows to the NPT other than the taxpayer's name, address, phone, and SSN.
Additional Information - In addition to the City Account Number, the federal EIN is entered in this menu, if there is one, as well as the taxpayer's e-mail address, along with indicators that the business terminated during the year and if this is an amended return. This menu also includes the two estimated taxes payment coupons as well as the extension request.
Resident Business Income (Loss) - This section is used by Philadelphia residents to complete Worksheet A in the form.
- Net Income or (Loss) - This information can come from the Federal tax return or the organization's Profit & Loss statement. Note: A loss on the previous year's NPT return (Worksheet A Line 4) cannot be carried forward to the current year NPT return.
- Federal Form 1065, Sched K-1 and Other Adjustments - Individual filers add back the prior year NPT and any other taxes based on net income deducted as an expense in the current year. (Prior year BIRT is deductible.)
- Other Income - Enter any other business income not reflected in the previous two lines.
- Resident Taxable Income or Loss (Not Eligible For Income Base Rate) - If Schedule SP is not included with the Pennsylvania tax return, enter the total of the preceding lines here. If Schedule SP is included with the Pennsylvania tax return, enter the amount as calculated by this formula:
( Sum of the three income and adjustment lines ) x ( 100% - % on Sch SP Section IV Line 15 ) - Resident Taxable Income or Loss (Eligible For Income Base Rate) - If Schedule SP is not included with the Pennsylvania tax return, leave this line at zero. If Schedule SP is included with the Pennsylvania tax return, enter the amount as calculated by this formula:
( Sum of the three income and adjustment lines ) x ( % on Sch SP Section IV Line 15 )
Nonresident Business Income (Loss) - This section is used by Philadelphia nonresidents to complete Worksheet B in the form. A nonresident individual or entity is conducting business in Philadelphia if in the city they solicit orders, perform services, execute contracts, manufacture, or sell, irrespective of whether the business has an established office, store, or branch in the city.
If a nonresident has an office, store, or branch in Philadelphia, or if its financial records delineate activity within and without the city, the net income may be determinable with a reasonable level of certainty, however if you aren't able to determine with certainty the Philadelphia net income, Worksheet NR-3 will need to be completed to determine the percentage of business conducted within the city based on a three-factor formula that apportions the tangible and real property, wages and salaries, and gross receipts. This factor multiplied by the total income will equal the Philadelphia nonresident income.
- Nonresident Apportionment (Worksheet NR-3) - Complete this worksheet if it isn't possible to determine the Philadelphia net income. The result will be an apportionment factor to multiply the total income by to determine the Philadelphia net income.
- Net Income or (Loss) - This information can come from the Federal tax return or the organization's Profit & Loss statement.
- Federal Form 1065, Sched K-1 and Other Adjustments - Individual filers add back the prior year NPT and any other taxes based on net income deducted as an expense in the current year. (Prior year BIRT is deductible.)
- Other Income - Enter any other business income not reflected in the previous two lines.
- Nonresident Taxable Income (Not Eligible For Income Base Rate) - If Schedule SP is not included with the Pennsylvania tax return, enter here the taxable nonresident income as adjusted by the nonresident apportionment factor. If Schedule SP is included with the Pennsylvania tax return, enter the amount as calculated by this formula:
( Apportionment-adjusted taxable nonresident net income ) x ( 100% - Sch SP Section IV Line 15 ) - Nonresident Taxable Income (Eligible For Income Base Rate) - If Schedule SP is not included with the Pennsylvania tax return, leave this line at zero. If Schedule SP is included with the Pennsylvania tax return, enter the amount as calculated by this formula:
( Apportionment-adjusted taxable nonresident net income ) x ( Sch SP Section IV Line 15 )
Business Income and Receipts Tax Credit - Taxpayers are entitled to a refundable credit of 60% of the BIRT paid. Use this section to complete Worksheet K and, if needed, Worksheet D to determine the amount of the credit.
- Worksheet D - Used by partnerships, joint ventures, and associations that include one or more corporate members. (Since corporations are exempt from NPT, the distributive share of net income of corporate members needs to be factored out.)
- Worksheet K - Used by individuals and any other entity not using Worksheet D.
After completing this section, the correct amount of credit from either Worksheet K or D will carry to Line 12a of the NPT return.
- Portion of Income With BIRT Tax and Corp Member Shares - Individual taxpayers and entities that don't have a corporate member leave this line blank. All others enter the distributive share of the net income of the corporate members.
- Total Taxable Income on which BIRT Tax was Paid - Enter the total taxable income on with BIRT was paid.
- 60% of BIRT Tax - Enter the BIRT as shown on the BIRT return line 1.
Estimated Payments and Other Credits - This menu is used to complete Worksheet E. Enter the estimated NPT payments made during the year, payment made with an extension, and the current year BIRT overpayment and/or prior year NPT overpayment if either are being applied to this return.
Estimated Payments Base - The estimated payments base equals the amount of the current year NPT. Select this line to generate the two NPT estimated payment coupons, the first due on April 15 and second due on June 15, with each coupon's payment equaling one quarter of the base.
Electronic Filing Type - The NPT can be e-filed separately or together with the PA return, and the refund or balance due can be issued by check or direct deposit.
Note: This is a guide on creating the Philadelphia Net Profits Tax Return in TaxSlayer Pro. It is not intended as tax advice. You are encouraged to review the information from the City of Philadelphia, as it is both complete and authoritative.
Additional Information:
City of Philadelphia: Net Profits Tax general information